Budget 2013: A high-calorie budget

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(Any opinions expressed here are those of the author and not of Reuters)

Indiaâ€™s left-leaning government believes in the â€˜eat more, burn moreâ€™ philosophy in managing its finances. Budget 2013 takes that idea further with an even stronger projected rise in spending.

If the increased spending is aimed at productive use, it may still end up doing some good. But the track record does not inspire confidence. I hope that after talking the talk, the finance minister will not lose his nerve when itâ€™s time to walk the walk.

With an increase in tax rates for corporates and the rich, and perhaps help from a reflating economy, the budget hopes for a 19 percent increase in tax collection. It is also budgeting for a 16.4 percent increase in overall spending. And this is despite an implausible 10 percent decline in subsidies.

Given that it wants to keep its borrowings under check, the government is hoping for a 134 percent increase in disinvestment of its shares in public companies (but not through privatization). If the IMFâ€™s definition of fiscal deficit is used, which treats disinvestment as financing not revenue, then there is really no decline in the deficit expected. Clearly, the governmentâ€™s voracious appetite remains as stout as ever.

When growth is under pressure (Q3FY13 GDP growth came in at just 4.5 percent), government spending may not be such a bad thing. Unfortunately, the track record is one of budgeting sensibly and doing quite something else through the year.

For instance, in FY12/13, initially the Plan expenditure was budgeted to grow by 26.3 percent and subsidies to fall by 12.8 percent. In reality, subsidies have grown by 18.2 percent while Plan expenditure has grown a mere 4.1 percent. This yearâ€™s subsidy budget, which is 10 percent lower than last year, is equally dodgy (especially fuel subsidy). It will take luck and political courage in equal measure to live up to this number.

What matters to the economy is not what the government says on budget day, but what it does through the rest of the year. Apart from executing budget promises there are several other critical policy measures that need to be accomplished during the year to reignite growth.

The finance minister alluded to many of these measures during his budget speech. I hope, but donâ€™t wager, that it will be different this time and he will actually walk the talk and follow through on his intentions.

Author Profile

Apurva Shah joined the BNP Paribas Mutual Fund in 2011 as Head, Investment Research and leads a team of analysts across asset classes. He has over 12 years experience in the Indian equity markets as a sector analyst and market strategist.